Brazil's Canary Fund Closes at $100M - Investment News

Canary Closes Oversubscribed $100 Million Fund for Latin American Startups

Canary, a Brazilian venture capital firm known for its investments in successful Latin American companies such as Buser, Sallve, Hashdex, Facily, and Trybe, has successfully closed its third fund. The fund secured over $100 million in commitments, exceeding its initial target.

Investment History and Growth

Since its inception in 2017, Canary has invested in over 100 companies throughout Latin America through its first two funds. These funds raised $45 million and $75 million respectively. The portfolio companies have collectively secured more than $2.3 billion in subsequent investment rounds.

Founding and Investment Philosophy

Canary was founded by Marcos Toledo, Florian Hagenbuch, Mate Pencz, Patrick de Picciotto, and Julio Vasconcellos. Izabel Gallera later joined as a partner. The firm adopts a sector-agnostic approach, aiming to serve as a local partner for U.S. firms seeking investment opportunities within the region.

Fund Deployment Strategy

Marcos Toledo anticipates investing in approximately 50 companies with initial investments beginning in the summer. The firm intends to focus on providing the first institutional check to promising founders.

Insights from Marcos Toledo

Fundraising Cadence

TC: How long do you usually wait between new raises?

MT: We typically raise a new fund every two to two-and-a-half years.

Timing of the New Fund Launch

Why was now a good time to launch a new fund?

Launching this fund now underscores the significant innovation potential within the region and our forward-looking vision. There remain numerous unresolved challenges, coupled with a growing talent pool of individuals launching or joining new ventures.

Belief in Latin American Potential

Canary was established in 2017 based on the belief that a wealth of talented individuals, with appropriate support and incentives, could build impactful businesses capable of transforming Latin America. The firm recognized the tech market in the region as being in its early stages, presenting substantial opportunities.

Growth of the Founder Ecosystem

Years later, Canary is pleased to see its initial hypothesis validated and the trend accelerating. An increasing number of professionals are transitioning to entrepreneurship, choosing to found companies or join startups rather than pursuing traditional employment. The second fund saw a 50% increase in second-time founders compared to the first, and this trend appears to be continuing.

Market Positioning and Opportunity

Furthermore, Canary is well-positioned in the market, with access to over 90% of all funding rounds in Brazil since 2017. The venture capital market in Latin America remains nascent, with numerous structural issues and industries ripe for disruption. This presents a significant opportunity for Canary to solidify its position as a leading VC firm in the region.

Raising Capital in the Current Climate

What was it like raising a fund in this environment?

Beyond simply securing capital, Canary prioritizes attracting long-term partners who can provide genuine value to its portfolio companies. The third fund benefited from strong oversubscription and the renewed partnerships with prominent Brazilian and global families, partners from renowned global funds, and leading tech founders in the region.

Expanding Investor Base

The firm also broadened its investor base to include entities from Asia, Latin America, and the U.S., as well as U.S. endowments and foundations. Success stories emerging from the region are increasing investor understanding and highlighting the potential for creating large-scale companies.

Targeted Investment Areas

Where will the new fund be targeted?

Similar to Canary’s previous funds, this third fund will focus on providing the first institutional investment to the most promising founders in Latin America. While initially concentrating on Brazil, the firm is increasingly investing in companies across the continent, including Mexico, Colombia, and Argentina.

Sector Agnosticism and Founder Focus

Canary maintains its sector-agnostic approach, believing that exceptional founders will identify and capitalize on the best opportunities. The firm specializes in identifying talented individuals with the ambition to improve the lives of millions of Latin Americans. It also focuses on supporting founders in areas such as fundraising, team building, commercial partnerships, public relations, and data analysis.

Investment Volume and Follow-on Investments

Canary’s first two funds each invested in approximately 50 companies, and the firm expects to make a similar number of initial investments with this new fund. A portion of the capital will be reserved for participation in subsequent funding rounds.

Emerging Startup Trends

Is there a particular sector where you are seeing a lot of startups coming into or raising funds?

Having access to 93% of deals invested by top-tier VC funds in Brazil since 2017 provides Canary with a unique market perspective. Fintech remains a significant sector for Latin American startups, with ample opportunities for ambitious founders.

Specific Sector Highlights

In Brazil, insurtech is experiencing a particularly interesting moment, with regulators actively encouraging innovation. Healthtech is also gaining momentum, spurred by the COVID-19 pandemic and the need for improvements in the healthcare industry.

Impact of the Pandemic

The pandemic has also fueled growth in startups focused on transforming e-commerce and improving its infrastructure, including payments, logistics, and social commerce.

B2B Marketplace Potential

Furthermore, B2B marketplaces represent an exciting opportunity, with the potential to transform entire industries from within. This is a growing global trend that is gaining traction in the region.

The Investment Landscape in Brazil/Latin America

What is the investment landscape like in Brazil/Latin America right now? How has it changed in the past 12 months? What do you predict for the next 12 months?

The investment landscape in Latin America is currently experiencing rapid acceleration, even considering the challenges posed by the COVID-19 pandemic 18 months ago. 2020 and 2021 were record years for venture capital investments in the region, driven by new factors.

Increased Global VC Participation

More global VC firms are making their first investments in the region, and Canary is proud to partner with firms like Dragoneer, a16z, SoftBank, QED, and Ribbit in the early stages.

Emergence of IPOs and Exits

The region is also witnessing a first wave of companies going public and completing the investment cycle. These exits and stock option distributions not only generate financial returns but also serve as success stories, attracting more talent to the ecosystem.

Positive Cycle and Ecosystem Maturity

Experienced executives and operators are considering their next ventures, creating a positive cycle that can be repeated as more companies go public. Additionally, other countries in Latin America are rapidly maturing their ecosystems, with a growing number of talented individuals launching new businesses and addressing significant regional challenges.